Royal Road Minerals leveraging a vast portfolio in Colombia and Nicaragua
Royal Road Minerals Ltd (CVE:RYR) is a gold-focused exploration company, with assets in Nicaragua and Colombia. The company has an extensive ground holding, with the largest exploration licence and licence application holding in both Nicaragua and Colombia.
In Nicaragua, the company has a 50-50 strategic partnership with HEMCO de Nicaragua, a subsidiary of Grupo Mineros, Colombia’s largest gold producer.
The Nicaraguan projects are located in two areas, the Golden Triangle, a well-known historic mining area, in the northeast of the country, and Los Andes in the central region (Figure 1).
In Colombia, Royal Road has projects in two main areas, the Northern Block and the Southern Block (Figure 1). Royal Road plans to advance its vast portfolio of projects by bringing in additional strategic partners, where appropriate, to financially de-risk its exposure to the assets and add value to its extensive ground holding.
While the prospect generator model is now well-established in the junior exploration space, Royal Road is creating its own version of the model that ensures funding comes into the top company as well as the assets.
The company also established a unique formalisation-royalty arrangement that will generate cash-flow from various formerly illegal gold mining operations on the company's assets in 2021.
This reduces the company's reliance on the equity markets for funding, therefore reducing the risk of dilution to investors while maintaining the potential upside benefits from a diverse portfolio of exploration assets that are being funded by other parties.
Figure 1 - The Location of Royal Road's Projects
Source: Royal Road Minerals
Jointly funding with Royal Road managing the exploration
Both parties will then jointly fund the project. In the event one of the parties opts not to contribute to the project its ownership will be diluted; if either party's interest falls below 15%, it will automatically convert to a 1.5% net smelter royalty.
Both partners are co-funding the exploration campaigns, with US$1.4mln each invested in the country by both partners to date.
Luna Roja Gold Project
Figure 2 - The Luna Roja Gold Project
Source: Proactive
Figure 3 - The Location of Luna Roja
Source: Royal Road Minerals
Figure 4 - Open Pit Workings at Luna Roja
Source: Proactive
Introduction
The Luna Roja Gold Project (Figure 2) is within the Golden Triangle, located in the North Caribbean Coast Autonomous Region of Nicaragua (Figure 3).
Since 1900, around 8 million ounces (moz) of gold and 12 moz of silver have been extracted from epithermal veins and skarns in the Golden Triangle. The Golden Triangle contains three principle historic mines: the Santa Rita Copper Gold Mine; the La Luz Gold Copper Mine and the Bonanza Gold Mine.
During our recent site visit to the Luna Roja Project, we were impressed by extensive areas of informal mining with both open pit (Figure 4) and underground (Figure 5) operations, see a video from our site visit here.
Figure 5 - Underground Workings at Luna Roja
Source: Proactive
These operations cover a strike length of around two kilometres (km) within Royal Road's tenements but also extend to the northwest and southeast outside Royal Roads tenements.
Within Royal Road's tenements there is estimated to be 30 of these informal workings, with around 170 informal miners operating in the area.
Figure 6 - Gold-in-soil Anomaly at the Luna Roja Project
Source: Royal Road Minerals, initial soil geochemical results from the Luna Roja Gold Skarn Project; Nicaragua, March 12, 2018.
The Luna Roja Project was first explored by the partnership using an initial rock-chip channel sampling programme (announced 25 September 2018), which defined anomalous gold grades from 50 locations.
This was followed by a grid-based deep auger soil geochemical programme (announced 12 March 2019), which identified a coherent gold anomaly covering an area of 1,500 m by 500 m (Figure 6).
Following the definition of this large gold-in-soil anomaly, a 17-hole (2,472 m) scout drilling programme was undertaken (Figure 7), which defined large near-surface intercepts of moderate-grade gold mineralisation and smaller intercepts of high-grade gold mineralisation (announced 4 September and 2 October 2019).
Significant results from this programme include: 49 m at a grade of 2.80 grams per tonne (g/t) gold (Au) from 36.05 m (LR-DDH-003); 49 m at a grade of 2.39 g/t Au from 24 m (LR-DDH-012); 23 m at a grade of 2.11 g/t Au from 145.05 m (LR-DDH-005); 18 m at a grade of 2.65 g/t Au from 65 m (LR-DDH-008); and 3 m at a grade of 7.38 g/t Au from 10. 05 m (LR-DDH-004).
The success of the scout drilling programme led the partnership to plan a follow-up geophysical programme to identify further drilling targets to the south, as well as under the surface cover, once completed an expansion drilling programme will be undertaken.
Geology
Figure 7 - The Geology of the Luna Roja Project
Source: Royal Road Minerals
Luna Roja Project is gold-bearing skarn, contained within Cretaceous limestones and shallow marine sediments (Figure 7). The deposit is thought to have formed when Upper Cretaceous to Tertiary age diorite bodies intruded the sedimentary package.
The mineralised system at Luna Roja is represented by a metasomatized sequence of felsic intrusive and carbonate rocks, overprinted by a low-sulphide, skarn-type alteration. The gold-bearing retrograde skarns outcrop at surface over areas ranging from 2 m to 25 m in width and 2 m to 50 m in strike length, with the system occurring over a strike length of 1,500 m.
While the skarns dip steeply towards the southwest, it was interesting to note during our site visit that we observed several pits located within the barren limestone to the east (Figure 7 – Green area). If skarn mineralisation is present in the eastern area, it would represent another exciting exploration target for the company.
The gold mineralisation at Luna Roja is related to veins and breccias, formed from the selective replacement of the carbonate-bearing rocks in the upper limb and hinge-zone of or a northwest-trending, thrust related, inclined antiform.
Metallurgy
Samples of the drill core from Luna Roja have been shipped to a laboratory for metallurgical testing, which will include assessing the potential to process the ore using different comminution options and gravity, cyanidation and flotation process options.
Caribe Gold Project
Introduction
Figure 8 - The Caribe Gold Project
Source: Proactive
The Caribe Gold Project (Figure 8), is also located in Nicaragua’s Golden Triangle, within the same group of concessions as the Luna Roja Project (Figure 9).
The Caribe porphyry target was first identified following a programme of reconnaissance mapping of airborne geophysical anomalies in February 2018.
A follow-up ground magnetic survey and deep auger soil sampling programme identified a coincident area of magnetic lows and a gold-in-soils anomaly (Figure 10). This target had a strike length of 1,200 m that remains open the northeast and southeast (announced 15 May 2018 and 17 June 2018).
Figure 9 - The Location of the Caribe Project
Source: Royal Road Minerals
Figure 10 - Magnetic Anomaly and Soil Anomaly at Caribe
Source: Royal Road Minerals
Figure 11 - Drill Hole Locations at Caribe
Source: Proactive
A scout drilling programme consisting of four diamond holes (413 m) (Figure 11), returned large near-surface intercepts of low-grade gold mineralisation (announced 7 October 2019).
Significant results from this programme, include: 28 m at a grade of 1.06 g/t Au from 2 m (CB-DDH-001); 18 m at a grade of 1.01 g/t Au from 13 m (CB-DDH-004); and 13 m at a grade of 1.00 g/t Au from 1 m (CB-DDH-002).
The core recovered from the drilling programme displayed several phases of brecciation, with extensive argillic alteration. During our site visit we observed the extensive argillic alteration (Figure 12), a video of the site visit can be seen here.
Royal Road’s geologists believe that repeated brecciation, argillic alteration with low-grade gold mineralisation, combined with the presence of an isolated magnetic anomaly could be indicative of a buried gold-bearing porphyry.
A follow-up drilling programme is currently being planned for 2020.
Figure 12 - Argillic Alteration at the Caribe Project
Source: Proactive
Geology
The gold mineralisation at Caribe is unusual for the area. The gold is generally contained with brecciated volcanic rocks and alkaline intrusions.
At this early stage in the project’s assessment the geometry and continuity of the mineralisation is not fully understood.
Los Andes Copper and Gold Project
Introduction
Figure 13 - The Location of the Los Andes Project
Source: Royal Road Minerals
Figure 14 - Map of the Los Andes Project
Source: Royal Road Minerals
Figure 15 - Schematic Cross Section through Luna Roja
Source: Royal Road Minerals
The Los Andes Copper-Gold Project is located in the Department of Boaco, around 90 km from Managua (Figure 13).
The project was previously explored by Caza Gold, the vendor of the project to Royal Road, who undertook several drilling campaigns between 2014 and 2015. Caza Gold was focused on identifying near-surface high-sulphidation gold mineralisation, and the results returned anomalous levels of copper, gold and silver but nothing of economic significance.
Once Royal Road had acquired the project it re-interpreted the historic data and defined a soil sampling programme, the results of which supported the model for a concealed porphyry deposit (Figure 14 & 15) with a focus on a magnetic anomaly at the southern end of the caldera, known as the Carrao prospect.
Three historic drill holes that were drilled in the Carrao prospect intersected anomalous copper mineralisation, with hole QZP-003 intersecting 150 m of massive pyrite, which is interpreted by Royal Road to be the upper part of a copper-gold porphyry system.
Geology
The host rocks that make up the Los Andes Project, are dominantly calc-alkaline volcanic of the Coyol Group, with two porphyritic intrusions. Mineralisation is associated with a 4 km circumference ring structure, interpreted to be a caldera, with associated hydrothermal alteration covering a circumference of 6 km.
Colombian Projects
Concessions and applications cover an area of 601,000 ha
Royal Road has been exploring in Colombia since 2015, and its current licence package comes from the combination of around 350,000 hectares (ha) in concession applications staked by Royal Road and the concessions gained through its acquisition of Northern Colombia Holdings, an affiliate of AngloGold Ashanti, in 2019.
Based on existing concessions and applications for concessions, Royal Road is the largest concession holder in Colombia with a footprint of 601,000 ha. The concessions are located in two areas the Northern Block and the Southern Block.
The most advanced project in the Northern Block is the Guintar-Niverengo-Margaritas Gold Project, while in the Southern Block the most advanced project is the El Gualtal Gold Project
AngloGold Ashanti acquisition terms
The terms of the acquisition of 251,000 ha of concessions and concession applications contain deffered consideration and back-in rights.
Differed consideration
Under the acquisition agreement if Royal Road establishes an inferred mineral resource over 1 moz Au equivalent on any specific project. AngloGold will be due differed consideration of US$5mln, payable within 90 days of the publication of the technical report.
AngloGold will receive additional differed consideration of US$5mln on completion of a feasibility study, payable within 90 days of the publication of the study. A further US$5mln is payable on commercial production, again payable within 90 days of the commencement of production.
Finally, AngloGold will receive four quarterly instalments of US$5mln 90 days after the end of each of the company’s four consecutive fiscal periods once production has commenced.
Back-in rights
If Royal Road completes a feasibility study that discloses for the first time an inferred mineral resource of 5 moz Au equivalent on a specific project, AngloGold has a one-time option to purchase a 75% interest in the project for a purchase price in an amount equal to three times the aggregate sum of all exploration expenditures at the project.
If AngloGold exercises the option, Royal Road will no longer have to make the payments on and following commercial production for the project for which AngloGold exercised the option.
Guintar-Niverengo-Margaritas Gold Project
Introduction
Figure 16 - The Location of the Guintar-Niverengo-Margaritas Project
Source: Royal Road Minerals
The Guintar-Niverengo-Margaritas Gold Project is located in the Anza District, around 50 km to the west of Medellin, and covers an area of 3,280 ha in the Middle Cauca Belt (Figure 16).
Mineros Letter of Intent
Royal Road has recently (23 December 2019) signed a letter of intent with Mineros to potentially form a joint venture at the project. Under a definitive agreement, it is envisaged that Mineros would pay US$1mln to Royal Road once a definitive agreement is signed. Mineros and Royal Road would agree on an exploration programme and budget for the project, of which Mineros would fund up to US$2.5mln.
Once Mineros has spent US$1mln at the project it would have the option to acquire 25% of the project and transfer titles and title applications to a new special purpose company, which would be held 75% by Royal Road and 25% by Mineros.
Once Mineros has spent US$2.5mln, it would move to a 50% holding of the project company and the partners would then jointly fund the development of the project company, with both interests being subject to dilution under a standard formula, provided that if any party dilutes to 30%, it would have a one-time right to contribute any funding shortfall and restore its pre-dilution ownership interest.
If a party’s interest is diluted to below 15%, such interest would convert to 1.5% net smelter royalty.
Site Visit
There are around 50 adits within the concession area, most of which have yet to be fully explored or sampled. During our site visit we went into one of these adits (Figure 17), which can be seen in our site visit video.
This north-south oriented adit was here when AngloGold was exploring the project back in 2016, but back then it was only around 2 m long, now it’s around 70 m long.
Figure 17 - An Adit at the Guintar-Niverengo Gold Project
Source: Proactive
Figure 18 - Sulphide Mineralisation the Guintar-Niverengo Gold Project
Source: Proactive
The rocks that can be seen exposed in the adit are intensively altered and silicified sediments, that are cross-cut but a stockwork of quartz, carbonate and quartz-carbonate veinlets that contain sulphides, dominantly pyrrhotite (Figure 18).
The adit itself is cross-cut by a series of wider east-west orientated veins, that are dominantly carbonate, with less quartz, pyrrhotite, pyrite, chalcopyrite and sphalerite. These veins are around 2-5 cm wide. These east-west veins are what the local miners have been focusing their efforts on mining. Royal Road has mapped the vein system over a total area of 6 km2.
A 10 hole (4,184 m) scout drilling programme (Figure 19) at the Guintar prospect intersected gold-bearing veins but over a significant enough area to be of economic interest. Results included: 28 m at a grade of 0.9 g/t Au (GUI-DD-009); 12 m at a grade of 1.8 g/t Au (GUI-DD-006); 2 m at a grade of 3.8 g/t Au, 8 m at a grade of 2.5 g/t Au and 6 m at a grade of 1.6 g/t Au.
Following this, AngloGold commented exploration around 1.5 km to the east in the Niverengo concession. Here the company defined a 2,000 m by 800 m wide target based on magnetics, induced polarisation and rock-chip geochemistry.
This target generation programme was followed by a six-hole (1,479 m) scout drilling programme, which found large intersects of clusters gold-bearing veins but the grades were too low to be of economic interest to AngloGold. Results included: 36 m at a grade of 1.2 g/t Au from surface (NIV-DD-003), 10 m at a grade of 1.6 g/t Au and 88 m at a grade of 0.9 g/t Au (NIV-DD-004).
Figure 19 - A Geological Map of the Guintar-Niverengo-Margaritas Project
Source: Royal Road Minerals
At the Margaritas application, located to the south of the Niverengo concession, reconnaissance work by AngloGold Ashanti identified hydrothermal breccias with anomalous gold, lead, zinc and copper.
Since acquiring the project in the middle of 2019, Royal Road has undertaken a review of the existing exploration data and remapped at district-scale and believes the project has the potential for a bulk tonnage target where chargeability anomalies correspond with magnetic highs (pyrrhotite stockworks/breccias) and a large bulk-tonnage target related to mineralized intrusions at depth.
The company expects to commence drilling before the end of the first quarter of 2020.
Geology
The project is dominated by deep marine meta-sediments, and mafic and ultramafic marine volcanic rocks of Cretaceous age. These rocks have been intruded by dioritic to dacitic stocks of Upper Miocence to Pliocene age. The intrusion has resulted in the metasomatism of the sedimentary-volcanic sequence.
At the edge of the concession lies the Aleman Mine, an artisanal operation focused on steeply dipping quartz-sulphide veinlets, exposed over a width of 87 m and a potential strike length of 1.5 km.
El Gualtal
Introduction
Figure 20 - The Location of the El Gualtal Project
Source: Royal Road Minerals website
The El Gualtal Gold Project is located in the Narino District, around 60 km to the west-northwest of Pasto, in the La Llanada-Sotomayor Goldfield (Figure 20).
The El Gualtal Project, is the largest informal mining operation in the La Llanada Goldfield, it contains more than 40 working audits, 35 non-operational adits with more than 1,000 miners working in the area. It is estimated that the operation extracts between 100 tonnes (t) and 150 t of hand-picked ore that produces around 25,000 oz Au per annum.
In October 2019, Royal Road reached a formalisation agreement and royalty and an earn-in option agreement with Sociedad Minera San Antonio, a company representing the informal miners working at El Gualtal.
This agreement means that Royal Road will give up a specific portion of its concession to the informal miners, giving them legal ownership of their operation. In return, Royal Road will receive a 3% royalty of the dore produced, and it retains the right to carry out all exploration activities on the El Gualtal concession and has the right to acquire 70% of the concession.
Royal Road Minerals is looking to apply a similar model of working with other informal miners at its projects in Colombia, working with the informal miners rather than against them.
Geology
The El Gualtal Gold Mine is a shallow-dipping, quartz-carbonate vein system. The coarse gold mineralisation is contained both within the veins, which have a thickness between 30 cm to 1.5 m (Figure 21), and in the host rock, with gold mineralisation extending over a thickness of 6 m.
Figure 21 - Photograph of the El Gualtal Vein System
Source: Royal Road Minerals Enters Agreements to Formalize Mining Activities at the El Gualtal Gold Mine, Nariño District, Colombia, October 2, 2019.
Regional Projects
Royal Road Minerals has a number of additional porphyry targets in southern Colombia. These targets are located on the northern extension of the Andean Copper Belt that extends in Ecuador, Chile and Peru.
The company is in discussions to secure access to these targets in order to commence exploration.
Capital Structure
Figure 22 - Royal Road Minerals' Share Register
Source: Royal Road Minerals
Royal Road has 215.8mln shares in issue with 17.7mln options and warrants (Figure 22).
Agnico Eagle is Royal Road's largest shareholder with 19.7% of the company on an undiluted basis.
Mackenzie Financial holds 5.5% and management holds 4.8% but has a large option position.
Share price history
Figure 23 - Royal Road Mineral's Share Price Chart
Source: Yahoo Finance
Over the past twelve months Royal Road’s share price has steadily increased from 0.07p to its current level of 0.22p, an increase of 214% (Figure 23). It reached a 12-month high of 0.305p in early December 2019.
Nicaragua Overview
Figure 24 - Transparency International’s Corruption Map of South and Central America
Source: https://www.transparency.org/cpi2018
In Nicaragua, the president is the head of state. The current president is Daniel Ortega of the ruling Sandinista National Liberation Front party; he has held the position since 2007 and was also previously president between 1985 and 1990; before this, he was the leader of Nicaragua but held a different title, coordinator of the junta of national reconstruction between 1979 and 1985. Daniel Ortega won the most recent general election with 72.4% of the vote in 2016 and there is due to be a general election in Nicaragua in 2021.
Mining is an important part of the Nicaraguan economy accounting for 4.8% of gross domestic product (GDP) in the third quarter of 2019 (Source: https://tradingeconomics.com/nicaragua/gdp-from-mining). The corporate tax rate for mining companies is 30% and the royalty rate for mining is 5%. All mining-related activities in Nicaragua are regulated by the Special Law for the Exploration and Exploitation of Mines (Law 387) and its bylaws in Decree No.119 *2001.
Prior to the enactment of Nicaragua’s Law 387 in 2001, the government issued both exploration and exploitation concessions. After 2001, mineral concessions with rights for both exploration and exploitation were granted by the government. Both exploitation and mineral concessions are granted for a term of 25 years and can be renewed for an additional 25 years.
Nicaragua has a transparency international corruption perception score of 25/100 (Figure 24), making it the third worst-ranked country in the South and Central America, it is just ahead of Venezuela 18/100 and Haiti 20/100. The Transparency International Index ranks 180 countries and territories by their perceived levels of public sector corruption according to experts and businesspeople. It uses a scale of 0 to 100, where 0 is highly corrupt and 100 is free of corruption.
More than two-thirds of countries globally score below 50/100, and the average score is 43/100. The average score for the Americas is 44/100. On a global rank, Nicaragua is 152nd out of 180 countries, demonstrating that Nicaragua is a relatively corrupt country to do business in, relative to other countries globally.
This data is supported by the World Bank: Ease of Doing Business Index, which ranks Nicaragua 142nd out of 190 countries globally. Compared to other Latin American and Caribbean countries it ranks 27th out of 32.
Figure 25 - The Fraser Institute’s Overall Investment Attractiveness Index Score for Latin American and Caribbean Basin Countries
Source: https://www.fraserinstitute.org/sites/default/files/annual-survey-of-mining-companies-2018.pdf
Nicaragua also scores poorly in the Fraser Institute Annual Survey of Mining Companies, 2018, which rates 83 jurisdictions around the world based on their geological attractiveness for minerals and metals and the extent to which government policies encourage or deter exploration and investment.
On the Fraser Institute’s Policy Perception Index, which assesses the relative attractiveness of a country’s mining policies, Nicaragua ranks 68th out of 83 countries, above Ecuador, Bolivia, Guatemala and Venezuela.
On the Fraser Institute’s Best Practices Mineral Potential Index, which ranks the jurisdictions based on which region’s geology encourages exploration investment, Nicaragua ranks bottom out of 83.
This gives Nicaragua an overall Investment Attractiveness Index rank of 81 out of 83 countries globally and 16th out of the 18 Latin American and Caribbean Basin countries included in the study (Figure 25).
Colombia Overview
Figure 26 - Transparency International’s Corruption Map of South and Central America
Source: https://www.transparency.org/cpi2018
In Colombia the president is the head of state and the head of government. The current president is Iván Duque Márquez, of the ruling Grand Alliance for Colombia; he has held the position since 2018. Iván Duque Márquez, won the second round of the most recent general election with 53.98% of the vote. There is due to be a general election in Colombia in 2022.
Mining is an important part of the Colombia economy accounting for 5.1% of GDP in the third quarter of 2019 (Source: https://tradingeconomics.com/colombia/indicators). The corporate tax rate for mining companies is 33% and the royalty rate for gold mining is 4%. All mining-related activities in Colombia are regulated by the constitution and the current Mining Code (Law 685 of 2001) as well as various environmental laws and regulations (such as Law 99 of 1993).
Mining titles issued before the current Mining Code allowed for four types of mining title: contribution agreements, exploration licences, exploitation licences and concession agreements. Some mining titles in Colombia have been grandfathered and remain subject to the previous legislation.
The current Mining Code establishes one type of mining title, a mining concession contract, which includes mining exploration and exploitation within a single title. The term of mining titles issued under the new code varies, but the maximum initial period is 30 years. There are no automatic extensions or guaranteed extension rights; these have to be negotiated with the National Mining Agency, which can request additional compensations and obligations.
Colombia has a transparency international corruption perception score of 36/100 (Figure 26), putting it ahead of other South American countries such as Brazil and Peru but behind Argentina and Chile. The Transparency International Index ranks 180 countries and territories by their perceived levels of public sector corruption according to experts and businesspeople. It uses a scale of 0 to 100, where 0 is highly corrupt and 100 is free of corruption.
More than two-thirds of countries globally score below 50/100, and the average score is 43/100. The average score for the Americas is 44/100. On a global rank Colombia is 99th out of 180 countries, so lies within the mid-range of countries.
By contrast, the World Bank: Ease of Doing Business Index, paints Colombia in a more favourable light and ranks the country 67th out of 190 countries globally. Compared to other Latin American and Caribbean countries it ranks 3rd out of 32, just behind Mexico and Puerto Rico.
Figure 27 - The Fraser Institute’s Overall Investment Attractiveness Index Score for Latin American and Caribbean Basin Countries
Source: https://www.fraserinstitute.org/sites/default/files/annual-survey-of-mining-companies-2018.pdf
Colombia sits within the mid-range of the Fraser Institute Annual Survey of Mining Companies, 2018, which rates 83 jurisdictions around the world based on their geological attractiveness for minerals and metals and the extent to which government policies encourage or deter exploration and investment.
On the Fraser Institute’s Policy Perception Index, which assesses the relative attractiveness of a country’s mining policies, Colombia ranks 65th out of 83 countries, making it the 8th highest ranked Country in Latin America and the Caribbean Basin.
On the Fraser Institute’s Best Practices Mineral Potential Index, which ranks the jurisdictions based on which region’s geology encourages exploration investment, Colombia ranks at the upper end of the peer group at 34th out of 83.
This gives Colombia an overall Investment Attractiveness Index rank of ranks 48th out of 83 countries, making it the sixth highest ranked Country in Latin America and the Caribbean Basin. (Figure 27).